Already have an account? Get multiple benefits of using own account!
Login in your account..!
Remember me
Don't have an account? Create your account in less than a minutes,
Forgot password? how can I recover my password now!
Enter right registered email to receive password!
Different Cost of Capital with Changed Proportions: It is quite possible that the specific costs of capital of different sources may be affected by the amount of funds' raised and the proportion of a particular source may also change as a result of new funds. Consequently, the WMCC may also change and vary differently. For example, following is the capital structure of firm:
Now suppose, the firm has an investment proposal of Rs. 10,00,000 and expect to generate retained earnings of Rs. 2,00,000 from the current operations. The remaining funds are raised by the issue of Equity share capital (Rs. 6,00,000 at 12%) and 12% Bonds (Rs. 2,00,000). The WMCC of the firm can now be ascertained as follows:
WMCC =.6 (.12) +.2 (.11) +.2 (.06) = .106 or 10.6%.
The WACC of the firm can now be calculated as follows:
Source
Amount (Rs.)
Weight
C/C
Weight )( C/C
Equity share capital
25,00,000
.417
.11
.0458
6,00,000
.100
.12
.0120
Retained earnings
12,50,000
.208
.105
.0228
2,00,000
.033
.0036
11 % Debentures
.209
.055
.0115
12% Debentures
.060
.0020
60,00,000
1.000
.0977
The WACC of the firm is .0977 or 9.77%. So, the WACC has increased from 9.6% to 9.77% as a result of WMCC of 10.6% (which was higher than the then WACe). So, the WMCC has lifted the WACC.
Leveraged Buyout (LBO) Acquisition of an organization through the accumulation of 70 % or more of the organizations total capitalized debt.
Discuss how a business might limit agency problem between management and creditors
What action(s) should be taken if analysis of pro forma financial statements reveals positive trends? Negative trends? When examine the pro forma statements, managers habi
Put option is the right of the investor which he may exercise on the date at the put price given in the indenture. Normally, put price is in par value. When yield rises
Dividends and interest payments Payment of dividends and interest can either be demonstrated under financing activities or under operating activities. Sum of the 3
The purchase price is expected to be in the region of £30m - £40m now (year 0 ?? 2003) and further cash flow effects might include: ?? Annual cash inflows from New You ?? in a rang
These were first issued during a period of extreme interest rate volatility in the late 1970s. Floating-rate bonds, which are also known as variable-rate bonds or simpl
How are financing costs generally incorporated into the capital budgeting analysis process? Financing costs are typically captured in the discount or hurdle rate when doing IRR
Using the operation cycle and any other financial management knowlegde, discuss the applicability of such cycle to poultry business in uganda( consider broilers)
Treasury Inflation-Protected Securities (TIPS) are the inflation-indexed bonds, the US Treasury offers. The first offer was made in the year 1997. As the name sug
Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!
whatsapp: +91-977-207-8620
Phone: +91-977-207-8620
Email: [email protected]
All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd